FROM THE 41ST FLOOR CONFERENCE ROOM AT THE TOP OF AMERICAN
INTERNATIONAL Group headquarters near Wall Street, the morning
fog is lifting over the East River bridges, bringing Manhattan
and Brooklyn into full view. Robert Benmosches vision
extends a good deal further.
In his three years at the helm of the giant insurer
dubbed the most hated company in Americaafter its
near-collapse triggered an unprecedented government bailout in
2008 Benmosche has orchestrated arguably the greatest
turnaround in corporate history. With a take-no-prisoners
leadership style, he restored morale at the beleaguered company
and convinced employees, clients and the government that AIG
had a future. Benmosche then sold off more than two dozen
businesses, shrinking AIG to roughly two thirds of its
precrisis size and raising enough money to repay every penny of
the $182.3 billion in federal aid it received and deliver
$15.1 billion in profits to taxpayers. Today the
companys core life and general insurance businesses are
operating profitably for the first time in years, and AIG looks
set to return fully to the private sector within months.
AIG CEO ROBERT BENMOSCHE; PHOTO BY SARAH MCCOLGAN
Now Benmosche is looking to grow AIG again. His executives
are employing the latest data and analytics to boost profits at
the groups property/casualty insurance arm and devising
new products to help its life insurance and retirement services
subsidiaries prosper in spite of todays record-low
interest rates. AIGs transformation has already seized
the attention of investors, who have made it the second most
valuable insurer in the world behind China Life Insurance Co.,
and Benmosche is confident that the company will soon regain
its longtime perch at the top of the industry.
In another three years we will again be the largest
insurance company in the world by market cap, he tells
Institutional Investor in a recent interview at his
offices, surrounded by Chinese ceramics, statues and paintings
that pay homage to AIGs birth in Shanghai almost a
Less clear is whether Benmosche himself will be around to
celebrate. Cancer treatment has melted pounds from his 6-foot-4
frame, turned his complexion florid and forced him to grow a
beard because rashes have left his face too sensitive to shave.
He declines to reveal what type of cancer he has because he
doesnt want the media speculating about how much time he
has left. It is a very aggressive cancer, says the
68-year-old Benmosche (pronounced BEN-moh-SHAY), who disclosed
his condition in October 2010 when the illness was first
detected. Im not going to be cured. I know that the
treatment will eventually stop working.
Illness hasnt dented his energy, though. With his
booming baritone voice and outsize personality, Benmosche sucks
up most of the oxygen in a room. He still jogs 15 miles a week
and continues to run AIG at a forced-march pace. His turnaround
has allowed the government to reduce its holding in the company
from 92 percent after the bailout to 16 percent, and the
Treasury Department is expected to sell its remaining stake by
early 2013. AIGs swagger is back. The groups p/c
and life subsidiaries, Chartis and SunAmerica Financial Group,
have returned to the black on an operating basis and will be
rebranded as AIG and AIG Life and Retirement this month.
Management has been great for the company, Treasury
and the taxpayer, says Cliff Gallant, an insurance
analyst at Keefe, Bruyette & Woods. AIG is clearly on
a sound footing today and making profits, and thats
something few people would have believed possible four years
AIG underscored its rebound by reporting strong
third-quarter earnings early this month. The company
posted net income of $1.9 billion in the period, compared
with a loss of $3.8 billion in the 2011 quarter. The
earlier results were depressed by valuation losses of
$3.2 billion on AIGs minority stake in AIA Group,
the Asian life insurer it floated two years ago to finance its
recovery, and on its interest in Maiden Lane III, a Federal
Reserve Bank of New York vehicle created during the bailout to
hold some of the toxic mortgage assets that had crippled AIG.
For the first nine months of 2012, the company earned
$7.6 billion, compared with a loss of $272 million a
Lower catastrophe losses helped boost profits in the first
three quarters, but its unclear whether that will
continue in the wake of claims related to Hurricane Sandy. AIG
didnt announce its financial results from its
headquarters because that building, along with four other Lower
Manhattan properties it uses, was damaged by floodwaters from
Sandy and remained shut one week after the storm.
AIG is a much slimmer outfit than it was before the crisis.
The company has cut its balance sheet nearly in half, to
$551 billion from $1.05 trillion, and reduced
staffing to 62,000 from 96,000. It has tumbled to fifth place
from first among the worlds general insurers, with
$39 billion in premiums in 2011, far behind global leader
Allianzs 101 billion ($129 billion). Its
life business, reduced by the $15.5 billion sale of
American Life Insurance Co. (Alico) to MetLife, ranks outside
the top 25 in the U.S. by premiums.
Adding to the challenge, AIGs core businesses are
mediocre performers, even if they have returned to
profitability. Chartiss combined ratio, which measures
costs and claims as a proportion of premiums, stood at 102.3
percent in the first half of 2012. A number above 100 percent
indicates that a company isnt making money from insurance
underwriting and has to rely on investment income for profits.
Many peers did much better, with ACE at 88.9 percent, Chubb
Corp. at 92.0 percent and Travelers Cos. at 96.3 percent.
AIGs p/c operation posted a modest 6 percent return on
equity in the first half, well below ACE (12.6 percent), Chubb
(11.8 percent) and Travelers (10.5 percent). It remains to be
seen whether AIGs life insurance unit, SunAmerica, can
prosper in todays prolonged low-interest-rate
environment. They have a lot of work to do, says
Josh Stirling, a senior analyst at Sanford C. Bernstein &
Yet todays difficulties pale in comparison with the
existential crisis the company faced just a few years ago. AIG
ran up record losses of $116.4 billion in the two years
ended December 31, 2009. The giant insurer saw the departure of
three CEOs and scores of other senior executives in the space
of 14 months. AIG became a corporate pariah, its name a byword
for corporate malfeasance. We were vilified in the media
and in comments coming out of Washington, says Benmosche.
Employees had their children bullied at school.
Benmosche, a former chairman and CEO of MetLife, was lured
out of retirement to take over at AIG and stopped the rot with
his blunt and aggressive leadership style. He recruited a
number of senior executives to spearhead the turnaround,
including Peter Hancock, CEO of Chartis and the likely
candidate to succeed Benmosche at the helm of AIG.
Hancock, a derivatives specialist with no prior experience
in insurance, has reorganized Chartis from a sprawling
collection of fiefdoms in more than 90 countries into two major
units global commercial and global consumer that
are using technology and data analytics to tailor insurance
policies for multinational clients and introduce successful
retail products to new markets around the globe. Scale is
not an objective for us we have it already,
Hancock tells II. Our strategies are very much focused on
growing the value of the company, not the volume of its
transactions. Hancock is counting on emerging markets
like Brazil, China, Indonesia, Mexico and Turkey to drive
future profits. AIG is the largest U.S. insurer in China and
currently ranks No. 10 overall in Turkey, No. 11 in Mexico and
No. 13 in Indonesia.
Meanwhile, SunAmerica, which focuses entirely on the U.S.
market, has recorded six consecutive quarters of positive net
flows. It has reestablished distribution platforms through
brokerages that abandoned the firm during the crisis, and it is
picking up market share in variable annuities, where its
presence used to be negligible.
All these initiatives have helped AIGs share price
soar by 41 percent since the beginning of the year, to $32.68
early this month. Even at that level AIG trades at just 0.6
times book value, compared with 0.90 for Allianz, 1.03 for ACE,
1.07 for Travelers and 1.34 for Chubb. AIG boasts
$105.53 billion in shareholder equity because of
government infusions, the proceeds of asset sales and tax-loss
carryforwards, compared with $62.7 billion for Allianz.
Bruce Berkowitz, founder and chief investment officer of
Miami-based Fairholme Capital Management, was an early investor
in postbailout AIG, and his flagship hedge fund, Fairholme
Fund, now holds a 1.96 percent stake worth $1.2 billion.
I bought them because they were cheap. And their major
businesses were intact, says Berkowitz. He predicts the
share price will rise to $70 next year as the government exits
the company and Benmosches team continues to bolster the
bottom line. The best is just ahead, he says.